House panel endorses removing personal property tax 

A bill to eliminate personal property tax on businesses is headed to the House floor. The House Revenue & Taxation Committee today, the second day of debate, voted 11 to 7 to send House Bill 599 to the floor with a do-pass recommendation.

A substitute motion that would have exempted businesses with less than $50,000 in personal property valuation failed with eight members in favor and 10 opposed.

Businesses now pay local taxes on “personal” property such as machinery, tools, furnishings, equipment and some fixtures. The Idaho Association of Commerce & Industry and 22 other business groups say the tax is difficult to track and administer, and costs money that could be spent to grow businesses – to the benefit of state income and sales tax collections.

Arguments in favor of the failed substitute motion included that a $50,000 personal property value limit would exempt 82 percent to 86 percent of businesses while enabling taxing districts to capture revenue from large businesses building or expanding. But opponents said it would not treat businesses equally. Alex LaBeau, president of the Idaho Association of Commerce & Industry, said the $50,000 exemption would penalize small but equipment-intensive businesses.

HB 599 would exempt personal property bought after Jan. 1 of this year. The remaining personal property would be assessed. The state would phase out the tax and reimburse counties – in 20 percent increments over five years, starting in fiscal 2010 – until the tax is eliminated and the state is fully reimbursing local governments. The increment is triggered when state revenues grow at least 4 percent from year to year.

The bill’s fiscal note says the gross cost is expected to be $110 million to $120 million. About half the cost will come back via economic expansion, and counties would save money now spent on tracking and assessing many of these depreciating assets, the note says.

Several school district administrators testified against the bill, saying it would make bonding more difficult. Bonding capacity would drop even though the state would replace lost revenue, because schools can bond for up to 5 percent of their taxable valuation.

A similar issue surfaced after the Legislature increased the homeowners exemption in 2006. The Legislature last year passed a law that adds that lost valuation back onto the total for bonding capacity.

Billy Knorpp, owner of RVP Business Systems and Ada Cash Register in Boise, said on behalf of the National Federation of Independent Business Idaho chapter members that 75 percent of members in a recent poll supported eliminating the personal property tax.

Knorpp, and Idaho Chamber Alliance representative John Watts, said businesses would spend that time and money on their businesses and employees.

Committee members who opposed the bill raised concerns including a shift of liability to other taxpayers, and Idaho revenue availability given competing spending needs and a slowing economy. Members supporting the bill noted that such a move has been contemplated since the Legislature removed the personal property tax on agricultural equipment in 2001.

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